The Income Declaration Scheme 2016: An Analysis

 

What is it?

Income Declaration Scheme 2016 came into effect from 1 June, 2016 and will last for four months. It’s an opportunity for those who didn’t disclose income or pay taxes thereon in the past to disclose the same.

  • The undisclosed sum can be held either in the form of assets or in any other form.
  • Those declaring undisclosed income will not be subject to further enquiry.
  • A person cannot declare under the Scheme his undisclosed income which has been acquired from money earned through corruption.
  • If someone fails to use this opportunity, the income, if unearthed by the tax-men in subsequent years, will be subject to tax for the previous years and there could be penal actions as well.
  • It is not mandatory to file the valuation report of the undisclosed income represented in the form of investment in asset along with the declaration.
  • Income declared under Income Declaration Scheme 2016 would be taxed at the rate of 30% plus a ‘Krishi Kalyan Cess’ of 25% on the taxes payable and a penalty at the rate of 25% of the taxes payable.
  • The person is not eligible to make a declaration under the Scheme if a search has been initiated and the time for issuance of notice under section 153A has not expired, even if such notice for the relevant assessment year has not been issued.
  • Immunity from prosecution under the Income-tax Act and Wealth Tax Act is also provided along with immunity from the Benami Transactions (Prohibition) Act, 1988 subject to transfer of asset to actual owner within the period specified in the Rules.
  • In respect of such undisclosed income which has been duly declared in good faith but not found eligible under Income Declaration Scheme 2016 , then such income shall not be hit by section 197(c) of the Finance Act, 2016.
  • Declaration cannot be made of undisclosed income which has been assessed to tax and the case is pending before an Appellate Authority.
  • Information in respect of declaration made is confidential as in the case of return of income filed by assessees[1].

Why is it important?

The Centre is planning to collect a huge amount through this effort and since this sum has not been included in the Budget, it will go a long way towards helping garner funds for infrastructure and other essential spends. Few believe that the rate of tax is too high to gather good response and few think that the assets declared should be taxed based on their current market value which will hold back declarations.[2]

Flaws

  • If a person makes declaration in respect of income which is not chargeable to tax under Income Tax Act, such declaration shall not come under the purview of Income Declaration Scheme but as per Section 191 of the Scheme the tax and surcharge paid u/s 184 or penalty paid u/s 183 shall not be refundable. However, if only tax or only surcharge is paid, whether section 191 shall operate or not is not clear from the scheme.
  • Although there is no specific bar under the Scheme for setting off any loss as introduced by Finance Act 2016 u/s 115BBE, but as per Section 188, income declared under the Scheme shall not be included in total Income for any assessment year. There is no implication even if section 183(4) is silent about setting off of loss.
  • Any person, who has made a declaration under sub-section (1) of section 183 in respect of his income, shall not be entitled to make any other declaration, under that sub-section in respect of his income, and any such other declaration, if made, shall be void. Since an embargo has been placed on making any other declaration, the revision of declaration already filed is not possible. Also different declarations for different assessment years cannot be filed.
  • If the declarant fails to pay tax etc within time specified u/s 187, only then undisclosed income shall be excluded from total Income. However, if tax is not paid within due time, then undisclosed income may be included in total income. Further, late submission of proof shall not have any impact on inclusion/exclusion of undisclosed income.
  • Section 189 talks about dis entitlement of declarant but not the privilege of Income Tax department to reopen the assessment.
  • The declarant is barred from claiming any relief in appeal in respect of income declared under the scheme.
  • Section 189 bars the reopening of assessment or reassessment. However, it should have been further extended to take care of revision also.

Conclusion and Suggestions

The Total cost should be reduced to about 25% in case of non-government persons, who disclose income/ wealth earned and accumulated by legitimate means. At higher cost of 55% clean all sins scheme be provided by granting immunity under law like Prevention of Corruption Act, Disproportionate assets cases etc. The penalty should be included in tax. It is not good to penalize rather tax them at higher rate.  One should note that the immunity from prosecution granted is only under Income-tax Act and Wealth-tax Act, but not under Foreign Exchange Management Act. One should also ensure that the declaration of undisclosed income should not form part of any proceedings pending under search or survey was conducted and the time-limit for issuance of notice was not expired; Cases covered under the Black Money Act; or Cases covered under IPC, the Narcotic Drugs and Psychotropic Substances Act, the Unlawful Activities (Prevention) Act, the Prevention of Corruption Act.

All the nuts and bolts of the Scheme have not been screwed up properly. There is requirement to reduce the load of information required for making declaration under the scheme. The success of the scheme shall depend upon the political willingness of the Government.[3]

 

[1] http://www.incometaxindia.gov.in/Pages/income-declaration-scheme.aspx

[2] http:// www.thehindubusinessline.com/opinion/columns/all-you-want-to-know-about-income-declaration-scheme/ article8752502.ece

[ 3 ] Comprehensive Analysis of Income Declaration Scheme 2016, Income Tax 01 Jun 2016,http://taxguru.in/income-tax/comprehensive-analysis-income-declaration-scheme-2016-applicable-01062016.html#sthash.sr36k9Bs.dpuf


Author

photograph (1)

Ipsita Mishra, Associate @ SAPAA.  She did her BALLB from NLU Odisha. A writer, Food enthusiast and an adventurer who loves traveling. She primarily likes working at the Confluence of Law & Policy.

 

 


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Disclaimer:  The views and opinions expressed in this article are those of the authors. All data and information provided on this site is for informational purposes only. sapaa.in makes no representations as to accuracy, completeness, correctness or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.